Euro fund (French guaranteed life fund)

The euro fund is the feature that sets French life insurance apart from most foreign savings products. The saver holds no share of a portfolio: the saver holds a claim on the insurer, which guarantees the capital paid in, net of fees, and credits a return each year. That return, once credited to the policy, is locked in for good: the ratchet effect, which rules out any later fall. On the other side, the insurer invests the money in its general account, made up mostly of bonds held to maturity, some equities and real estate. The credited return therefore depends not on the year's market value but on the portfolio's book yield, smoothed through profit sharing and reserves the insurer builds in good years and draws in bad ones. This smoothing has a price: when rates fall, the fund pays more than the market for longer; when they rise fast, as in 2022, it pays less than new investments, and the saver has an incentive to surrender. The average credited rate, which fell to around 1.3 percent in 2020 and 2021 according to the ACPR, then rose back to around 2.5 percent. The capital guarantee requires substantial own funds under Solvency II, which explains why insurers push savers toward unit-linked funds.